Solar farm diversification (revisted)

We previously wrote about the tax implications of solar parks back in October 2020, when the idea of solar farm diversification was starting to feature in conversations with our clients. Fast forward nearly 3 years, and we have seen significant interest in solar projects, albeit navigating the planning system has been far from straight forward.

It’s a long-term project spanning decades; operators generally seek leases of 30 years plus on sites upwards of 100 acres. Whilst offering potential financial security, there are various tax consequences to consider, mainly the potential implication for Inheritance Tax (IHT). 

Many farms currently benefit from Agricultural Property Relief (APR) and Business Property Relief (BPR) which protect the value of their farming / business assets from IHT.

Renting the land to an operator potentially forfeits APR on the area in question. Some operators will consider the continued use of the land for agricultural purposes, for example, grazing, however landowners are still at risk of losing out on APR where the primary use of the land is not agricultural.

It may be possible to retain BPR, however the position will need to be reviewed as if structured incorrectly, renting the land could result in both the solar land and other farm / estate assets losing their BPR status

Income Tax will be due on the annual rent which may be subject to higher rates of 40%/45%. It is important to consider who should own the solar land going forward and who will receive (and be taxed on) the income. It may be a tax planning opportunity to consider transferring the land to the next generation, although this needs to be done early as once the land is taken out of trading / agricultural use, certain valuable tax reliefs will no longer be available.  Solutions using trusts and limited companies may also be appropriate. The potential benefits of solar diversification are not to be sniffed at; a long-term, weather-proof (where let), fixed income, with the possibility of maximising return on poor performing land. However careful planning is essential from the outset.